Since the outbreak of the COVID-19 pandemic, the oil industry has been one of the most heavily-affected sectors of the economy hit by the unprecedented crisis. The unique anomalies that have been noticed in the supply and demand equilibrium have shattered oil prices, leading to the historical moment in April 2020 when future oil contracts being traded in negative (below zero) rates.

As a renewed surge of CIVID-19 cases hits in a second wave, and given the latest developments following the outcome of the US elections, worries around the oil prices threshold are coming once again into the foreground.

Second Wave of COVID Raises Grave Concerns for Oil Markets

As we are leaving the summer far behind, more and more COVID-19-related cases and deaths are being reported at the global level. By mid-October 2020, there was a remarkable trend in the Covid-19 incidents across the world, indicating that a second more aggressive wave of the virus is due.

This has been the exact case up to date, as we are witnessing the virus numbers moving rapidly upwards. As a response several governments, including Germany, France, and the UK have decided to reimpose lockdowns across several parts of the country or in the national level.

This new situation has created grave concerns as the lockdown policies not only sharply reduce the daily consumption of oil products in the everyday life of the citizens in these countries, but also trigger a hard blow on the aviation industry as a whole.

With the volume of international trips being dramatically downsized, the demand for petroleum-based jet fuel is sharply falling, bringing down together the price of oil across the global markets. By early November and once UK Prime Minister Boris Johnson confirmed that the country was entering again a national lockdown, the market promptly reacted and showcased the aforementioned concerns, sending the WTI price under $34 a barrel at some point during last Monday’s session (November 2). This was the lowest since early June.

Prices briefly rebounded during that week, due to the volatility that the US elections have created and also the fact that OPEC+ has started reconsidering the scheduled easing of oil production by January 2021, pushing the prices to gain some momentum, but significant worries remain.

Biden’s Election and Potential JCPOA Renegotiation

The election of Joe Biden as the 46^th President of the United States could add further pressure on the short-term outlook of the oil prices. As mentioned earlier, the race to the US elections has helped the prices to shortly rebound by mid-week; however, Biden’s win could affect the short-term performance of oil for two major reasons.

On the one hand we should anticipate that the President-elect will adopt a much stricter policy towards the COVID-19 pandemic. While Trump has followed a focused strategy, trying to mitigate as much as possible the grave consequences of the virus on the US economy, namely enforcing measures to boost the finances of the states, Biden will most probably pursue a more aggressive approach, similar to the one that many EU countries have followed, through the implementation of new lockdowns in several parts of the country and a mask mandate.

At the same time, Biden has stated that a renegotiation with the Islamic Republic of Iran around the JCPOA is definitely on the table. The Joint Comprehensive Plan of Action or “Iran Deal” has been a long-term process between Iran and P5+1 seeking to terminate parts of the Iranian nuclear program in exchange for lifting economic sanctions from Tehran and assisting the struggling economy of the country.

During the mid-2010s, Joe Biden – as the US Vice President at the time – played a pivotal role in the planning and implementation of the deal; and apparently the new President-elect still deeply believes in it. Trump, to the contrary, has fought every aspect of the deal during his Presidency, calling it the “worst deal ever negotiated”.

A potential renegotiation with Iran would not be an easy path, as Trump’s backing off from what was agreed and the likely election of a hardliner in the place of Iranian President Hassan Rouhani by the summer of 2021 could further complicate an already flawed relationship.

If Tehran comes to an agreement with Washington and the sanctions are lifted, then we should anticipate millions of barrels of Iranian oil finding their way back to the global markets daily, further deteriorating the problematic supply and demand equilibrium. Regardless of the outcome of the negotiations though – which are expected to run in the long-term anyway – the very fact that Biden is willing to restart the talks with the Islamic Republic will likely create additional concerns and push the oil prices even lower in the near future.

How Might OPEC+ React to an Oil Collapse?

Under the current circumstances, it is likely that we are due to face another perfect storm for oil prices on a global scale in the near future. In early December, OPEC is scheduled to meet and discuss the Organization’s strategies, in order to mitigate the impact of the another sharp downtrend in the demand of the petroleum products.

OPEC+ had previously implemented a supply cut of 9.7 million barrels per day to tackle the unparalleled challenges, posed by the COVID-19 crisis. This decrease – which started on May 2020 – was limited to 7.7 million barrels per day by August 2020 with an additional scheduled supply boost of two million barrels per day in January 2021; apparently the January boost has been currently paused, considering the new facts.

This step has temporarily provided some support to the fluctuating prices but would have minimal impact in the months to follow. Predicting that the new COVID-19 wave will have many similarities with the first surge of the virus, it is highly likely that we will face another oil crisis in the near future, sending WTI prices below 30 USD per barrel by early 2021.

This is the most probable scenario, unless there is a breakthrough development on the COVID-19 front – like the Pfizer/BioNTech’s latest vaccine announcement which gave an impressive 10% boost to WTI- or OPEC+ decides to proceed with radical moves, sharply cutting further the global supply in order to manipulate the oil rates; still such a move would put at risk the viability and the long-term outlook of petroleum-based economies, especially those of the rich monarchies of the Gulf and thus any such bold actions are unlikely to occur.

L'articolo Are Oil Prices About to Go into Freefall Once Again? proviene da InsideOver.

By early March, people around the world had already started comprehending that COVID-19 was something much more complicated and dangerous than “just a Chinese problem.” The exponential spread of the virus across Italy, followed by other European major countries and the United States, indicated the international scope of the challenge. As the global economy finds itself in uncharted waters — with a looming crisis lying ahead — the oil industry has witnessed an unprecedented crash in the prices of its benchmark products. Let’s have a look into the drivers that caused this sharp decline in global oil prices.

The Saudi-Russian Standoff and its Result

There is a long and undisputed history of negotiations over the shaping of global oil prices between Saudi Arabia — the de facto of the Organization of the Petroleum Exporting Countries (OPEC) — and Russia, one of the largest oil producers worldwide. Even though it is not an OPEC member, the Russian Federation has always had a strong say in the policy over oil pricing, due to its tremendous production levels and Moscow’s significant geopolitical position. Global prices are historically shaped according to the supply-demand ratio and the manipulation of the prices is established through the control of supply by the major oil-producing players.

Last March, Russia’s Energy Minister, Alexander Novak met OPEC members in Vienna. OPEC parties proposed a 1.5% cut in world oil supply: or an impressive 1.5 million barrels per day (bpd) decrease. The lion’s share of this cut would be undertaken by Riyadh, as long as Moscow would be willing to align with and back this strategy. However, catching by surprise the KSA, Russia turned down the plan for supply control. This decision backfired much worse than anyone would anticipate. Riyadh announced that OPEC was willing to boost the supply, as a response to Russian defiance, and at the same time would significantly reduce the oil price for some of the major clients of the Kingdom. These moves were enough to cause panic to the global markets and violently pushed the price of Brent crude significantly lower, with losses reaching up to 30% during the second week of March.

The COVID-19 Global Lockdown: Steady Supply, Minimum Demand and Lack of Storage

The second major shock for oil world prices has been the great uncertainty and the ensuing global lockdown imposed due to the COVID-19 pandemic. The vast upsurge in the virus threat perception came at a moment, when oil prices were already hit hard and extremely volatile; it would not be far-fetched to say that COVID-19 delivered the final blow to the oil industry at that moment. The most indicative, among the various virus consequences, has been the tremendous impact on the aviation industry. Global commercial flights decreased by almost 50% by the end of March, only to go on to report a record 70% decline in April. Such an unprecedented drop also translates into massive decline of demand for fuels and oil products. On the top of that, it has not been just the aviation sector that was impacted by the restrictions imposed almost all over the world. COVID-19 countermeasures have actually put numerous countries, worldwide, on hold, literally pausing most of the everyday life aspects for almost a 2-month period. This means that the oil demand related to any form of activity under normal circumstances, from daily transportation to electric energy consumption, has been in freefall all that time.

With global demand approaching minimum levels, oil reserves have been piling up, creating an additional problem. At some point in late March, people started worrying about the lack of storage facilities; if the COVID-19 crisis demanded such restrictions to be in place in the long run, then there would not be enough facilities to store the oil. This horrific thought has pushed oil prices even lower, causing a negative rally and creating the paradox of the negative trading of future oil contracts.

In mid-April amid the unparalleled downfall in global oil prices, OPEC members alongside Russia finally agreed on a massive 10 million bpd cut — almost ten times more than the proposed cut which Russia had formerly turned down almost a month earlier. Albeit the scope of this decisive move the markets have not reacted as one would expect. Not surprisingly the announcement of the deal has pushed prices higher, but the fears around how long COVID-19 restrictions will last, the scenario of a second wave of the outbreak and skepticism around storage availability, have created a volatile context, with trends moving up and down and panic dominating. This has been the case until the end of last month.

With Current Rally Only One Thing is Certain: High Volatility Ahead

Oil prices have seen a continuous rise since April 22, when Brent has reported historic lows, approaching, even momentarily, a shocking 15 USD per barrel. Since then, prices have almost doubled, but still are nowhere close to pre-February figures. Many analysts have warned that the rally of the last few days could be attributed to an unfounded over-optimistic sentiment. In my point of view, the rally should not come as a huge surprise, considering that the sentiment would rapidly change as the world was moving towards the easing of the COVID-19 restrictions. With May 4 being the benchmark date for the gradual return to normality in various countries — an extra reason for Star Wars fans to celebrate — this has also created a positive sentiment across the markets. Assessing the energy industry, specifically, as the world was moving towards that date, the demand for fossil fuels was also rising fast, driving oil prices higher and higher.

It is too early to accurately predict any long-term impact of the COVID-19 crisis on the world markets and the energy sector. One thing that is certain for the months to follow is that the energy market will remain extremely volatile. The possibility of a second COVID-19 wave and its potential effect could create violent downturns, while any developments on the COVID-19 vaccine front combined with some purposeful moves by the OPEC+ parties could make prices soar. A “Buy the Rumour, Sell the News” philosophy is probably the best strategy going forward.

L'articolo Why Oil Prices Plummeted and What It Means proviene da InsideOver.

Sultan Qaboos bin Said, the ruler of Oman, passed away Jan. 10. Oman is a country that barely registers when one thinks of the Middle East, but for good reasons. Under Qaboos’ leadership, Oman was transformed into an exemplary Middle Eastern state in practically all areas of development, including education, health, and economy. Moreover, Qaboos leveraged his nation’s diplomatic power and proximity to regional conflict zones to broker peace. While neighboring states seemed to invite discord, Oman sought stability. Qaboos’ named his cousin, Haitham bin Tariq Al Said, as his successor to the throne.

Following in Qaboos’ Footsteps

After assuming the mantle of sultan, Haitham vowed to “follow the same line as the late sultan, and the principles that he asserted for the foreign policy of our country, of peaceful coexistence among nations and people, and good neighborly behavior of non-interference in the affairs of others,” according to a Foreign Affairs report. 

Haitham is no stranger to Oman – he served in the Foreign Ministry and as Heritage and Culture Minister. His appointment also does not come as a shock as he was widely believed to be the first choice as successor. 

“He is described by those who have met him as quiet, steady, and a good listener,” Nikita Lalwani, Josh Rubin, and Sam Winter-Levy reported for Foreign Affairs. 

In the past, the 65-year-old Haitham studied at the University of Oxford’s Foreign Service Programme. In addition to numerous Omani honours, he also received the Order of King Abdulaziz from Saudi Arabia, the Grand Decoration of Honour for Services to the Republic of Austria, and the Honorary Knight Grand Cross of the Royal Victorian Order from Britain. 

Curing an Oil Dependency

While Haitham by all accounts may be as well-liked as his predecessor, likability alone will not solve an oil crisis on the horizon. As is the case with most Middle Eastern states, Oman depends heavily on oil revenues. Haitham attempted to preempt the inevitable outcome of running out of oil while he served in the Foreign Ministry. If any faults can be found in the new ruler, it is his failure to carve out new sources of revenue for his nation. 

Oil accounts for 70 to 85 percent of Oman’s revenues, according to Foreign Policy. A plan outlined by Qaboos, dubbed Vision 2020, was designed to diversify Oman’s economy, but now that the target year has arrived, the plan was extended to 2040. Haitham will have to grapple with creating a path for the future and thus far, no details have made clear what that might entail.

Despite the love of their late sultan, Omanis joined in the Arab Spring protests of 2011 to rally against corruption and unemployment. Qaboos responded by creating more government positions, which largely came through the Royal Oman Police. 

Borrowing a page from the Saudi playbook, Oman instituted an “Omanization” programme designed to curtail migrant workers taking jobs that would otherwise go to Omani citizens. This has arguably hurt private companies more than it has helped citizens. Expats are still prevalent in the workforce, with more than 40 percent of the population being migrants. Often companies will either create unproductive positions for Omanis or simply reduce their foreign worker count and leave the positions unfilled.

While Haitham has inherited a significant economic problem, his predecessor proved even the most difficult and institutionalised problems can be overcome. Qaboos pushed for greater gender equality by giving females the right to vote in 2002, putting women in government posts, and overseeing an employment revolution in which women enjoy equality in opportunities and pay. 

More broadly, Qaboos oversaw the rise of life expectancy from 50 years to 77. When he took the throne, the state had only 10 km of paved road and three schools. Now it boasts 29,000 km of paved roads and education can be considered among the best in the world with 96 percent adult literacy thanks to the establishing of 1,500 schools. 

Diplomatically, Oman helped broker peace between Israel and Egypt, and it mediated talks between the US and Iran during the presidency of Barack Obama, which led to the Iranian nuclear deal. 

Its relationship with the US, in particular, is storied, dating back to the first American president, George Washington. Oman was also the first Arab state to dispatch diplomats to America.

In short, Qaboos handed his successor a prosperous nation, even considering its oil dependence. Haitham, if he makes good on his word to follow the footsteps of his predecessor, will have an easier time than most of his regional neighbors. Continuing Oman’s tradition of peace and diplomacy will allow Haitham to focus his attention on overcoming economic problems, a luxury few are afforded in the current geopolitical climate.

L'articolo Oman’s Throne Passes to Haitham Following Death of Qaboos proviene da InsideOver.